By John Alan Cohan, Attorney at Law
There is a conflict in
the law concerning the liability of co-owners of aircraft for
operational negligence. The question of liability of one co-owner
for the negligence of another depends on the state law that applies
to the situation. The situation can arise where one co-owner is in
operational control of the aircraft and commits an act of
negligence, causing damages. Other situations can involve tort
liability of non-operating lessor, co-owners engaged in joint
ventures, flight training school operators, and employers of
operating pilots.
A related area of concern involves the liability of a parent
corporation for the torts of a subsidiary entity that operates the
aircraft. A parent corporation can be liable for torts of a
subsidiary if the parent corporation controls the subsidiary. This
can be shown if the parent company owns most or all of the stock of
the subsidiary, if there are common directors and officers, if the
parent corporation funds the subsidiary, if the subsidiary has
grossly inadequate capital, if the parent entity pays the salaries
and expenses or losses of the subsidiary, if the parent entity
treats the property of the subsidiary as its own, and other
elements.
Many closely held companies create a wholly-owned subsidiary
which in turn owns and operates aircraft. This situation is
sometimes used to insulate the owners of the parent company from
liability, and as part of a tax planning program. In a major case,
Allegheny Airline, Inc. v. U.S. (504 F.2d 104), a subsidiary owned
a Piper Cherokee and operated a flight training school. A student
pilot was involved in a mid-air collision with another aircraft. In
an action for damages, the court held that the parent corporation
was not liable for the claimed tort of the subsidiary. The evidence
indicated that the subsidiary was adequately capitalized, that the
parent company was engaged in an entirely different business, and
that corporate formalities were observed. Other cases have gone the
other way, however, such as Momen v. United States (946 F.Supp.
196). The latter case involved a commuter carrier affiliated with
USAir. The commuter displayed the insignia and logo of USAir, the
tickets were issued by USAir, and the entities used their names
together in advertisements.
The Texas Supreme Court
dealt with the issue of liability of co-owners for pilot negligence
in Shoemaker v. Estate of Whistler (513 S.W.2d 10). One co-owner
was piloting an aircraft on a voluntary search and rescue mission,
and other co-owners were passengers. The plane crashed in bad
weather, and there was evidence of pilot error.
The court held that liability against the co-owners would depend
on whether they were engaged in a joint enterprise. The theory of
joint enterprise is that each party is the agent of the other and
therefore responsible for the negligent act of the other. The court
said that the co-owners had a joint interest in the purpose of the
enterprise and an equal right to direct and control the conduct of
each other. However, the court said that since the venture was not
for a pecuniary or financial purpose, it would not impose vicarious
liability in this instance. Other states take a more expansive view
of the joint enterprise doctrine, and would impose joint liability
in these facts.
A California case, Ayer v. Boyle (37 Cal. App. 3d 822), held
that a co-owner was not liable for the negligence of his fellow
co-owner who piloted the aircraft. The co-owner was not present
when the pilot crashed their jointly owned antique aircraft, which
had not yet passed inspection for federal licensing, killing a
passenger. The court said that there was no evidence that the
co-owner knew or should have known that the other co-owner might
fly the airplane with a passenger. Subsequently, California enacted
an ownership liability statute, making owners of aircraft liable
for negligence of those who operate the aircraft with the express
or implied permission of the owners. About thirty other states,
including New York, have similar laws.
As mentioned, the liability of co-owners depends on the
jurisdiction involved, and there are many other cases dealing with
this issue. A separate basis of liability of co-owners can be on
the theory of negligent entrustment. For example, in a California
case, White v. Inbound Aviation (69 Cal. App. 4th 910), a plane was
leased to an inexperienced pilot who intended to fly to Lake
Tahoe’s high-altitude airport surrounded by mountains. The
defendant had reason to know that the pilot lacked the ability to
safely use the aircrat for this particular trip.